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November 14, 2005

IRAN: Iran Khodro threatens Turkish automaker with international court action

Car maker Iran Khodro said on Monday it would take Turkish vehicle maker Tofas to an international tribunal for breach of contract in an engine supply deal if "amicable channels" got nowhere by January, a Reuters report said.

Car maker Iran Khodro said on Monday it would take Turkish vehicle maker Tofas to an international tribunal for breach of contract in an engine supply deal if “amicable channels” got nowhere by January, a Reuters report said.

Khodro’s deputy managing director Mohsen Javaheri reportedly declined to specify an exact figure for the damages Khodro would seek but said they ran into “tens ofms of euros”.

A Khodro lawyer told Reuters last year that his company estimated the alleged breach of contract to have cost EUR80m (US$93.6m).

Khodro reportedly says that the Turkish company reneged on a deal agreed in January 2003 to supply engines and gearboxes for 10 years, buckling to pressure from US giant General Motors, one of its shareholders.

“Over the past two and a half years, Iran Khodro has almost exhausted all amicable channels,” Javaheri told Reuters.

“Unless the issue is resolved by Tofas in the immediate future, Iran Khodro has no choice but to initiate legal action with Tofas by referring this case to the International Chamber of Commerce in Paris,” he added. “Their deadline for solving the problem is January 2006.”

According to Reuters, he added: “Their excuse was US sanctions against Iran. They claimed General Motors was one of their main shareholders and that it disapproved of the deal.”

Reuters noted that the US government, which accuses Iran of seeking nuclear arms and funding anti-Israeli militants, has a trade embargo against Tehran, threatening penalties against any firm that does business with the Islamic Republic.

Tofas reportedly released a stock market statement saying it hoped a courtroom battle could be avoided.

“Both parties want to solve this matter through talks. Indeed this intention was expressed clearly in the statement from Iran’s Khodro. We will make the necessary announcement when progress is made in the talks,” it said.

Reuters noted that Iran Khodro is the Middle East’s biggest car maker and has signed production agreements with Renault and Peugeot . It produced about 515,000 cars in the year to March 2005 and has ambitious plans to lift output to 1m cars by 2011.

Tofas is a joint venture between Fiat and Turkish conglomerate KOC Holding, with GM holding a minority stake, Reuters added.

Iranian industry overview

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